Mirvac reveals WOT takeover plan

Diversified property giant
Mirvac
Group has explained its takeover plan for
Westpac Office
Trust, with the trust’s independent directors recommending the offer to investors.

Westpac Funds Management has entered into a Scheme Implementation Agreement by Mirvac to acquire all WOT units and instalment receipts.

WOT investors can elect to receive either a scrip option or cash option.

The scrip option comprises 0.597 Mirvac stapled securties for every WOT unit or the equivalent swap for Mirvac and WOT instalment receipts. The cash option is 86¢ per WOT unit up to an aggregate cash component of $200 million.

The offer is at a 2.4 per cent premium to net tangible asset backing and Mirvac has indicated it will ­repay all of WOT’s debt facilities, which expire next year.

If unitholders approve the scheme, Mirvac will pay Westpac $15 million to forgo any future management, transaction or advisory fees.

This will be the first arm’s length takeover in the sector since the global financial crisis.

Mirvac was recently granted ­exclusive access to conduct due diligence on the Westpac-managed trust, which has a $1.1 billion portfolio of office buildings, as the bank is keen to cut off its property exposures.

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Yesterday, Mirvac said the transaction would be funded by existing cash reserves, undrawn debt facilities and the issue of new Mirvac stapled securities.

Peter Zuk of Goldman Sachs JBWere said Mirvac’s total outlay will be $1.2 billion – comprising $550 million in cash, $235 million debt and $414.7 million from the issue of Mirvac shares.

“Of this, $716.3 million of WOT’s debt will be retired, $414.7 million goes to WOT unitholders as part of the scrip option and $73.3 million of transaction costs will be paid," Mr Zuk said.

Westpac Funds Management chairman Alan Cameron said: “Having considered a number of alternatives, we believe Mirvac’s offer is attractive and represents a premium to both recent trading prices and net tangible asset backing."

Mirvac claims the takeover will result in a 3 per cent rise in Mirvac Property Trust’s earnings per share during the 2011 fiscal year and improvement in the quality and metrics of Mirvac’s investment portfolio.

Westpac Funds Management is being advised by Citigroup and Allens Arthur Robinson. Mirvac is being advised by Merrill Lynch.

Investors are expected to meet on July 13 to vote on the scheme and if approved, it will be implemented in late July.

Mr Zuk said the slight premium to NTA is “offset by lower than expected consideration payable for management rights".

In addition, Mirvac has not previously disclosed its fiscal 2011 EPS guidance, so detail on how the WOT takeover will be earnings accretive is “scant", Mr Zuk said.

He reiterated GSJBW’s view that the quality of WOT’s portfolio will improve the overall quality of Mirvac Property Trust and it will provide Mirvac with a stronger base to expand its development business.

Mr Zuk said this transaction should not signal the end of the mergers and acquisitions road for Mirvac.

“We still think it would make sense for Mirvac to keep eyeing potential acquisitions of smaller scale residential developers," he said.

Maxim Asset Management’s managing director Winston Sammut said it seemed the Mirvac scrip was issued at a discount to NTA to acquire an asset at a premium to NTA, which was difficult to justify in the current economic environment.

“They have made up for this by acquiring the management rights at a reasonable price," Mr Sammut said.

“I guess the proof of whether it’s right will become evident down the track once [Mirvac] decides what to keep and what to sell."

Phoenix Portfolios fund manager Stuart Cartledge said WOT had “a great portfolio of assets" and it made good strategic sense for Mirvac to make a move on the trust.

“They’re buying at a low point in the cycle and on that basis can pay more," Mr Cartledge said.

“The negative spin is it dilutes the growth a lot of people were forecasting Mirvac to deliver through earnings growth in their development business, because there’s more shares on issue."